Fixed rate disaster

royalmar

Hi everyone,

First time post so be gentle with me!!!!

Our mortgage with the Nationwide was up for renewal around May last year and we were offered a fixed rate mortgage at 6.43%.

Due to the problems with various banks at that time, Northern Rock etc, several people said it was a good deal.

Having signed up we have sat and watched the rates drop through the floor across the board.

I know that we have the security of knowing what our payments are each month and we are not going to contact the lender moaning our lot.

I would like some opinions based on previous recessions as to what the long term expectations are for interest rates (Obviously nothing is predictable these days).

Also, should rates go sky high could the mender change their rules as some did with the trackers and insist that our rate is raised?

As I said we are not looking to bail out but would like some considered opinions on the way things could go on the basis of the recession.

Many thanks

Gorgeous_George

Your rate is fixed and will not rise until the fixed rate ends (there is probably a clause in the Ts and Cs that would allow the bank to raise the rate but even if there is, it is extremely unlikely to be used).

Rates will rise again one day but I think they will remain low for the next 5 years at least.

'several people' advised you badly. I think those who offer legitimate financial advice do so with their hands tied behind their backs. They cannot offer their opinion. Instead they offer advice that the spreadsheet decides based on your answers to key questions. If you answer 'I don't like risk' the spreadsheet steers you directly into fixed rate deals regardless of the likelihood of future interest rate movements.

To put some numbers to the problem:

A £100K mortgage taken out over 25 years at 6.43% will cost you £8,580 more than a fixed rate of 4% over the first 5 years. You will owe £3,371 more at the end of those 5 years.

In total, £199 per month worse off over 5 years but that is if a 4% deal was available for the whole period.


GG

beecher

Interest rates will go up at some point, but no-one knows when as no-one knows how bad this recession is going to be and when we're going to come out the other end. They could stay low for years or could start heading upwards if the spectre of hyperinflation raises its head.

You have a fixed rate and your rate won't increase throughout that time, no matter what. Lenders haven't changed their rules regarding trackers as those imposing the collar haven't made it a secret in the past.

6.43% isn't a 'disaster' as long as it is affordable.

Gorgeous_George

It may not be a disaster but, with the benefit of hindsight, it was an extremely poor choice and one which will cost the OP dearly over the next few years.

GG

royalmar

Thanks for the prompt replies.

The 'advice' wasn't from a professional and I accept the decision was all my own.

We can afford the payments as they stand it just winds me up that at the crucial times in my life I consistently make the bad decision.

All I ask for is a small amount of hindsight up front then I might, for once, not see myself off.

From a selfish point of view it is sad to see that interest rates may well stay low for up to five years.

Still it gives me time to prepare for my next poor decision.

Thanks again

withabix

Gorgeous_George wrote: »

I think those who offer legitimate financial advice do so with their hands tied behind their backs. They cannot offer their opinion. Instead they offer advice that the spreadsheet decides based on your answers to key questions. If you answer 'I don't like risk' the spreadsheet steers you directly into fixed rate deals regardless of the likelihood of future interest rate movements.

You forgot the bit which steers the 'Independant Financial Adviser' in the direction of the deal which pays him the largest commission....

lilac_lady

No-one knows where interest rates are going to go in the future so don't beat yourself up about it. You may have backed a winner. Who knows?

Gorgeous_George

withabix wrote: »

You forgot the bit which steers the 'Independant Financial Adviser' in the direction of the deal which pays him the largest commission....

That has not been my experience of IFAs but I share your scepticism.

GG

beecher

royalmar wrote: »

We can afford the payments as they stand it just winds me up that at the crucial times in my life I consistently make the bad decision.

If it makes you feel any better, I fixed at over 8% with my first mortgage and got a 100% mortgage when I had the money for a deposit! Talk about daft and that was following the advice of a professional who told me money would never be so cheap again! Over the 25 years or however long you have a mortgage, you'll make good decisions and bad decisions but will only know which is which with hindsight as no-one ever knows for sure in which direction interest rates are going.

withabix

In July 2007 I got myself a new deal at 1.99% for 12 months followed by 5.99% for 48 months (ie until July 2012). No application fee and no overhang penalty.

Some you win, some you lose.

At least I know how much I will be paying. Only have a £48k mortgage though, so not too painful!! (and also probably unlikely to save much if I paid the penalty and went for a new deal).

My 'homeowner loan' for my current car is on the same rate as well, so I still consider that part to be a good deal. Market rates are 'somewhat' higher unsecured!!

nathanhill69

Back in May 2008 everyone was predicting interest rates were going up up and further up. This forum was full of posters (IFA's and all) saying that fixing your interest rate was the way to go, with a minimum of 5 years and, if you could, 10 years was even better. To be fair I think the OP based their decision on the best information that was available - no one seemed to accurately predict what we have seen happen with the economy, Gordon Brown pumping so much money into it and the current historically low interest rates.

Personally it's not the interest rates that worry me - it's the inevitable large hike in our taxes in five or so years time to pay back all the money the UK has borrowed